Read
her entire
post — actually, her entire series of
posts — on the fallout from the bitcoin crash.
Ehrsam says that the price decline did not affect investor
interest, and optimistically suggests that it will ultimately
improve the Bitcoin ecosystem by teaching important lessons about
cyclicality and expense management to cryptocurrency miners.
11/Bitcoin was specifically designed to use speculation early
on to overcome the normal chicken/egg boostrapping problem for
new networks.
“Price volatility isn’t good for certain uses of Bitcoin but, in
that same time period, we went from 600,000 users to 2.1 million
users, so it hasn’t caused the number of people signing up on our
site to go down,” Ehrsam says.
CoinBase
Jeff Hudson poses in front
of the first bitcoin ATM, according to cofounders of Vancouver
Bitcoiniacs Trading Company, Vancouver, Oct. 28,
2013.
REUTERS/Andy
Clark
So what's with the continued faith in the cryptocurrency?
Coinbase, the popular bitcoin-wallet site, just raised $75
million in Series C funding. It is the largest funding round ever
for a bitcoin-related company, according to
Dan Primack, who reported the news.
Marc Andreessen recently tweetstormed about why bitcoin is still
a great idea, despite the volatility:
... unless a massive amount of new capital is transferred into
bitcoin market sharpish — which is not impossible, since there
are still a number of deep pocketed believers out there — it’s
hard to imagine the asset class going any other way but south.
Furthermore, it’s unlikely at this stage that either price
rigging, mining cartels or lower energy costs will be able to
reverse that trend.
Primack spoke to Coinbase's founder, Fred Ehrsam, who had
this to say:
12/Attacking Bitcoin for having speculative levels of
volatility is missing the point of how the system was designed
for this point in time.
For this more
cynical view of bitcoin, there's no one better than
Izabella Kaminska:
A report from last week from
Re/code suggests that the company's valuation is $400
million.
For Coinbase, it doesn't really matter what the price of bitcoin
is, only how many people are using it. That number continues to
grow, according to them.
14/In the short run, Bitcoin is still highly useful as a
transaction and trust network in many uses cases even with high
volatility.
CoinBase
Current investors include Andreessen Horowitz, Union Square
Ventures, Y Combinator, Funders Club, IDG Ventures, and others.
The new round, according to Primack, is being led by DFJ Growth,
and also includes the New York Stock Exchange, USAA, and former
Citigroup CEO Vikram Pandit (the full list of investors is
here).
On the other
hand, the fact that there's been a massive bitcoin crash in the
last few months is not a good thing, and no amount of
arguing for the value of the blockchain as a technology is going
to change that. A lot of people got burned in the currency's
nearly $1,000 price drop in the last 14 months, and as the price
falls, so does the incentive to mine more bitcoin.
The only hope the system has: increasing transaction fees (in a
way that ironically limits its competitive advantage in the
payment market), getting a big fat capital bailout or convincing
miners that processing bitcoin transactions is a wonderful
non-profit hobby to have.
13/Now, yes, in the long run, BTC does need to stabilize --
which I think will happen with a combo of scale + use of
derivatives (hedging).
Meanwhile, bitcoin has lost 75% of its value in the last year,
and at a price of about $209 per BTC, is down to a little over
18% of its all-time high, $1,145, which it hit in November 2013.
Here's the all-time price chart:
The smart use of bitcoin isn't speculating in the price; it's
briefly converting whatever currency you have into BTC in order
make a transaction that you can be sure gets to the person you
want it to reach. In that case, it doesn't
really matter what the price of bitcoin is that day (except, of
course, when the price moves so much that you
no longer have enough to cover your
payment).
20/Two particular areas of focus today are A use outside the US
where currencies + banks are often awful, and B
machine-to-machine payments.

The idea seems to be that right now, investors aren't really
seeing bitcoin as a useful currency but rather as a good method
for making secure transactions. That's helpful in explaining
interest from places like the New York Stock Exchange. In that
case, focusing on the currency's volatility is missing the point.